Legal Issues in AL and Bella Vista Case

PART: A
Subject Matter:
There are two companies: Aluminium Ltd (“AL”) and Bella Vista Homes Ltd. (“Bella Vista”).
AL, an Australia based company, has supplied prefabricated galvanized steel structure (“Steel
Structures”) to Bella Vista (5379301) in Liquidation and has not been paid for it.
As in the issue, “Prior to supplying the Steel Structures, AL forwarded the contract to Bella Vista
however Bella Vista did not sign the Contract. Upon receiving the Contract, Bella Vista emailed
to AL details of the Steel Structures required and AL duly shipped the Steel Structures to Bella
Vista. The Contract includesthe following Romalpha Clause ‘Title to the Goods shall remain
vested in Aluminium Ltd and shall not pass to Bella Vista Homes Ltd. (5379301) until the
purchase price for the Goods has been paid in full and received by Aluminium Ltd’.” This
executive summary is about the following three issues:
a. The New Zealand legal system,explaining the applicable law to the scenario above;
b. The effect of the Romalpha Clause
c. Legal avenues available to AL to claim against the shareholders and directors of
Bella Vista for non payment of the Steel Structures.
Analysis:
“The whole body of existing English law, both legislation and common law, as well as the
English constitutional conventions, was received into New Zealand on 14 January 1840. For
some time, the Parliament at Westminster legislated for New Zealand, but from 1865, New
Zealand received limited legislative powers of its own. In 1931 the United Kingdom Parliament
passed the Statute of Westminster, to facilitate a move towards independence for the Dominions
(former colonies) by removing the limitations on their legislative powers. In 1947 New Zealand
passed the Statute of Westminster Adoption Act and accepted full responsibility for its own
destiny. Until very recently, New Zealand continued to look to the mother Parliament at
Westminster for sources of its own legislation, and to the superior English courts for precedents
in its own courts. House of Lords and (English) Court of Appeal decisions are still highly
persuasive, and English decisions are still often cited in New Zealand courts.”
“As the world of electronic commerce expands there is an increasing demand for clarity in the
rules which apply to the participants and their transactions. Uncertainty exists on such matters as
whether agreements entered into electronically are enforceable, how the operative terms of on-
line contracts will be determined by courts, what rights parties have to on-line information, and
what electronic self-help remedies they may exercise. The increased costs of dealing with these
new legal uncertainties may offset any reduction in costs achieved through the use of new
technologies and, as a result, may slow needlessly the rate at which businesses are willing to
implement new technologies. Much of the demand for the development of a legal framework has
come from those who use electronic commerce and want assurances that electronic transactions
will be valid and binding as well as certainty about the rules and remedies that apply to their

transactions. If the communication was made by email the answer depends on whether the email
user had direct and immediate access to the person to whom the email is sent or whether the
email was sent through the electronic equivalent of the postal service, an internet service
provider (ISP), which collected the mail. Users in the former category have a mode of
communication which is close to instantaneous while those using an ISP may only communicate
as quickly as their telephone access, service provider and personal inclination dictate.”
So, in this concerned case, Bella Vista e-mailed AL sending the details of the steel to be
delivered which was acceptence to the offer in the agreement though the former did not sign it.
Hence, non payment of the consideration shall be considered as breach of the contract.
“The New Zealand Companies Act 1993 contains mandatory and default provisions. Many of
the default provisions relate to the statutory constitution of the company that generally affect its
internal management. In a broad sense, therefore, and assuming the conceptualisation of the
corporation that sits behind the paradigm is accepted, New Zealand companies fit broadly within
the Anatomy paradigm. But the only way New Zealand companies can achieve separate legal
entity is through an enabling statute – by complying with the requirements for registration found
in the Companies Act 1993. Section 15 of that Act states that a company is a separate legal entity
from its shareholders. The significance attached to the fact that companies can only achieve
incorporation and status as a legal person through a statute depends therefore on whether at a
fundamental level one considers modern companies to be primarily statutory or primarily
contractual.”
However, the contract includes the following Romalpha Clause “Title to the Goods shall remain
vested in Aluminium Ltd and shall not pass to Bella Vista Homes Ltd. (5379301) until the
purchase price for the Goods has been paid in full and received by Aluminium Ltd”. Hence, AL
is still legally rather contractually is the owner of the Steel.
Romalpha Clause:
“The use of ‘reservation of title’ clauses - or, as they are commonly referred to, ‘Romalpa
clauses’ - has been widespread in the sale of goods. Under this type of clause, the seller retains
ownership of the goods until they are paid for in full, but the buyer is allowed to take delivery of
the goods. If the buyer doesn't pay, the seller can therefore take possession of the goods. The
Romalpa clause avoids the presumption set down in the SALE OF GOODS ACT 1908 that
ownership of the goods passes to the buyer when they are delivered to the buyer. Before the
PERSONAL PROPERTY SECURITIES ACT 1999 (PPSA) came into force in 2002, the benefit
of a Romalpa clause to the seller was that if the buyer became insolvent before paying in full, the
seller could recover the goods, and did not need to go through the normal procedure to recover
the debt. This was because the seller still had ownership of the goods. The seller would therefore
have priority over banks and other creditors holding security interests, who would otherwise, if
ownership of the goods had passed to the buyer, have prevailed over the unpaid seller's right to
the price of the goods. However, the PPSA has eliminated this advantage of the seller retaining
ownership. Under this Act, the seller's interest falls within the broad definition of a ‘security
interest’ and must therefore be registered on the Personal Property Securities Register (PPSR) if

the seller is to be protected. If the seller does not register their interest, then other creditors of the
buyer who subsequently take security interests over the goods and register them will take priority
over the seller. For more on the PPSR, see How to register your security interest on the Personal
Property Securities Register if you're a creditor and How to check the Personal Property
Securities Register for money owed on property offered to you for sale.”
“The PPSA affects the question of priority between the seller and the buyer's other creditors. But
as between the buyer and seller, a Romalpa clause will continue to have effect, entitling the seller
to possession of the goods if they are not paid for in full, regardless of whether the seller's
interest is registered on the PPSR. The CONSUMER GUARANTEES ACT 1993 gives buyers
some protection against Romalpa clauses. The Act provides that for the clause to take effect, the
following two conditions must be satisfied:
 The buyer must have received oral advice, acknowledged by the buyer in writing, of the
way in which his or her right to undisturbed possession of the goods is affected by the
Romalpa clause. This oral advice must be sufficient to enable a reasonable consumer to
understand the general nature and effect of the clause.
 The buyer must also have received a written copy of the agreement for supply, or of the
part of the agreement that contains the Romalpa clause.
Other clauses that may protect the seller
In addition to a simple Romalpa clause, you as a seller may also include provisions so that you
are entitled to any proceeds if the buyer sells the goods to somebody else, or manufactures new
goods out of the original goods.
Cautionary notes
 Care is required both in drafting the Romalpa clause and in ensuring that the
requirements of the Consumer Guarantees Act are complied with. You should therefore
obtain the advice of a lawyer both for the drafting of the clause and also before you take
any action to recover the goods under the clause.
 The effect of a Romalpa clause may be complicated by the goods in question being
attached to real property (for example, if the goods are the joinery for a house). You
should obtain legal advice in those cases.”